Commercial paper fraud, particularly check fraud, is one of the largest challenges facing businesses and financial institutions today. With the advancement of computer technology it is increasingly easy for criminals, either independently or in organized gangs, to manipulate checks to deceive innocent victims. Victims include financial institutions, businesses who accept and issue checks, bank consumers, and insurance companies, among others. In most cases, these crimes begin with the theft of a financial document, and it may be perpetrated as easily as someone stealing a blank check from a home or vehicle during a burglary, searching for a canceled or old check in the garbage, or removing a check from a mailed bill payment.
Experienced bank tellers often are able to identify suspicious checks based upon identification of certain signs that may indicate a fraudulent check, for example, if a check lacks perforations or the check number is missing. If a check number is low, e.g. 101 up to about 400 on personal checks or 1001 up to about 1500 on business checks, then the likelihood that a check is fraudulent is increased inasmuch as bad checks are often written on accounts less than one year old. Furthermore, a bank teller may notice that the type of font used to print the customer's name is different from the font used to print the address or that additions to the check, e.g. phone numbers, have been written by hand. Likewise, lack of an account holder's address or the address of the bank is suspicious, as well as stains or discolorations on the check possibly caused by erasures or alterations. Most payroll, expenses, and dividend checks are printed via computer so it is suspicious if the name of the payee for such a check appears to have been printed by a typewriter. Other obvious deficiencies include the word “VOID” appearing across the check and the lack of an authorized signature. While the foregoing may appear to be suspicious to an experienced bank teller, other types of fraud are less obvious.
A significant amount of check fraud is due to counterfeiting and forgery or otherwise manipulating the information on a check to the benefit of a criminal. For a business, forgery typically takes place when an employee issues a check without proper authorization. Criminals may also steal a check, endorse it and present for payment at a retail location or at the bank teller window, often using bogus personal identification. Counterfeiting of checks is possible with readily available desktop publishing equipment including a personal computer, scanner, sophisticated software and printer, or simply duplicating a check with advanced color photocopiers. Paperhanging is another fraud technique in which someone purposely writes a check on a closed account or reorders checks on a closed account. Check kiting, yet another form of check fraud, is the act of opening accounts at two or more institutions and using the float time of available funds to create fraudulent balances; this fraud has recently become easier because of new regulations requiring banks to make funds available sooner.
Businesses and banks experience considerable losses of money and time each year due to the prevalence of individuals perpetrating fraudulent check schemes. Annual economic losses due to check fraud are in the billions of dollars and continue to grow steadily as criminals profit from defrauding victims. For the consumer, the amount of inconvenience and anxiety caused by resolving problems with the account, local merchants, as well as possible repercussions with credit bureaus may be considerable.
To combat the problem of fraudulent checks some banks have instituted fraud protection services in which selected information is transmitted by the writer of the check directly to the bank holding the business's account at the time the check is written. Then, when the check is presented for payment at the bank, the check is compared with information provided directly to the bank by the writer of the check. The system requires extra effort on the part of the business and typically the bank charges extra fees for this service whether or not any fraudulent checks are identified.
Accordingly, there is a need for a system and method for screening for fraudulent checks, as well as other forms of commercial paper, in a manner that minimizes additional effort or disruption to the account owner and that generally overcomes the above-noted deficiencies.